Can Government Direct Bailout Intervention Relieve the Crisis Sentiment in the Context of the COVID-19 Pandemic

Abstract

It has been increasingly common for the government to adopt non-market approaches to manage or interfere with the market during a stock market crisis. Taking the Chinese government’s bailout of the market during the COVID-19 pandemic as the research object, this paper examines the impact of the Chinese government’s direct bailout intervention on investors’ crisis psychology. The findings are as follows: (1) The government “buy-in” bailout effectively smooths investors’ crisis sentiment. (2) There is a downside of the government “buy-in” bailout, which compromises the market pricing effect and aggravates the herding effect. (3) For stocks not bought by the government, the government’s “verbal” intervention can relieve investors’ crisis sentiment in the short term. (4) Stocks with different characteristics are affected by the government’s “verbal” intervention to different degrees, with financial stocks and problematic stocks more susceptible to it.